Coins DIG

This week the United States gold futures registered a record high slightly below $900 an ounce as funds discharged money after Ben Bernanke, the Chairman of the Federal Reserve, stated about speculation of the further rate cuts and slide of the dollar.

"The rate cut (speculation) has been driving the gold market through its impact on the dollar. I expect more of the same going forward," outlined Thomas Winmill, portfolio manager of Midas Fund in New York, an institution that oversees $265 million of assets under management.

On Thursday Ben Bernanke stated that the central bank of the United States was in position for aggressive counteraction against a deep housing slump and tension on the credit market that were jeopardizing the economic growth.

Shortly after the Chairman of the Federal Reserve commented on the matter, the February contract registered a record high of $897.30 an ounce, as the American currency slid against other major currencies in expectation of further rate cuts.

"At this particular point, it's all on anticipation of lower U.S. interest rates," mentioned Frank McGhee, head precious metals trader of Integrated Brokerage Services in Chicago. The comments given by Mr. Bernanke did not match those of Jean-Claude Trichet, his European Central Bank counterpart, who cited constant inflation pressures.

Mr. Trichet pointed out that the euro zone is likely to face further policy-tightening. This will provide additional impulsion to the euro.

"The relevant things today are that the ECB said they are going to be vigilant and tight, and Bernanke said that they are ready to take significant action to support growth and help the economy out," explained Axel Merk, portfolio manager of Merk Hard Currency Fund in Palo Alto, California, a fund that manages $250 million of assets.

"I think people are realizing now that we are in a recession, or if we are not in one, we are heading into one. There is very little the Fed can do about it, but there is a lot the Fed wants to do about it," mentioned Merk.

Investors could be disappointed because of failures of the Federal Reserve to decrease rates in order to boost growth. According to fund managers, these failures could have a negative impact on gold prices.

"It seems like the market is betting that there is a going to be rate cut. I would say that the surprise factor going forward would be that there will be a less-than-expected or no rate cut, and that I think it would be adverse to gold," announced Winmill.

With regards to the research segment, Gary Dugan, chief investment officer for Merrill's wealth management arm in Europe, the Middle East and Africa, mentioned that the current gold run will most likely to end after the global economy improves. "There is an ultimate cap at $1, 000," said Mr. Dugan, hoping the price would lower to around $740 at the end of 2008 and $750 as this year's average.